House of MERS

Reston company entangled in foreclosure mess

A Reston-based company that tracks the ownership of 65 million home loans has become a target of criticism in the national foreclosure mess.

Del. Robert G. Marshall, R-Manassas, has asked Virginia Attorney General Ken Cuccinelli to determine whether Mortgage Electronic Registration Systems (MERS) is violating state law by not paying local fees when loans or their servicing rights change hands. Marshall is drafting a bill that would prevent lenders from foreclosing on homes until they pay those fees.

In addition, Peter Nickles, the attorney general for the District of Columbia, has issued an “enforcement statement” saying that its laws require the assignment of a mortgage from one party to another to be recorded with the D.C. Recorder of Deeds within 30 days. “This requirement is not satisfied by private tracking of mortgage interests through the Mortgage Electronic Registration Systems,” the statement says.

Both actions take aim at the way MERS operates at a time when lawyers representing homeowners are mounting legal challenges to a wave of foreclosures nationwide. Lenders have been accused of sloppy paperwork and “robosigning” legal documents that were never reviewed. Cuccinelli has joined other attorneys general in investigating foreclosure practices.

MERS has become entangled in the controversy for the role it plays as agent for its members. MERS’ name often appears on public records in place of a lender or mortgage servicer, and it has initiated foreclosures on its members’ behalf.

Created in the late 1990s with equity commitments from some of the heavy hitters in the mortgage industry — Freddie Mac and Fannie Mae among others — MERS has become the go-to source for tracking ownership in mortgage interests. MERS claims its operations streamline paperwork, help lenders manage loans and expedite the foreclosure process. The company has been credited with boosting the secondary mortgage market in which loans are bundled together and sold as mortgage-backed securities.

MERS members appoint the company as agent on loans registered in its system, making the organization the mortgagee of record. When a MERS member transfers loan servicing interests or sells the note in a loan to another member, the transaction is tracked in the database. But there is no record of each additional assignment at the city or county land office, and therefore the lender pays no assignment fees to local authorities.

In response to a letter from Marshall to Cuccinelli asking for an official opinion on MERS, the company issued a statement saying that it “does not eliminate, omit or otherwise fail to report land ownership information from public records. When MERS is the mortgagee of record, this eliminates the need for assignments of the mortgage lien between servicing companies because MERS holds the mortgage lien for the original lender and the subsequent owners of the note.”

Some lawsuits have questioned whether MERS has legal standing to initiate foreclosures. In recent cases, the supreme courts of Arkansas, Kansas and Maine have ruled against MERS. However, MERS’ website provides a sampling of decisions in 16 states that support its position. MERS’ role in foreclosures also has been upheld in Virginia courts in a number of cases.

In recent testimony, R.K. Arnold, the CEO of MERS’ parent organization, said that “our mission is that every mortgage would be a MERS mortgagee.” And he’s not just talking about residential mortgages. The commercial loan registry division of MERS, started in 2003, uses the same methods as the residential loan database. That could mean more foreclosure drama waiting in the wings for MERS. Stay tuned.